Top Fund Betting on Troubled Businesses, AI Failures Outperforms 99% of Peers

Fund Manager Dmitry Solomakhin’s Contrarian Approach Pays Off

Dmitry Solomakhin, a fund manager at Fidelity International Ltd., has built a successful career betting against conventional market wisdom. Initially focusing on companies facing operational or financial distress, his approach has proven lucrative. His $1.1 billion global contrarian value fund has outperformed 99% of its peers over the past three months, with similar success over several years. His investments often target companies deemed out of favor by the market, where he sees potential for significant recovery.

A Proven Track Record

Rolls-Royce Holdings Plc exemplifies Solomakhin’s strategy. Once struggling due to pandemic-induced supply chain issues, the UK engine maker has seen a near 400% recovery since late 2022, thanks to a transformative program and new management. Despite holding onto this position through challenging times, Solomakhin remains optimistic about its future prospects. “It’s now done well, but I think there’s more to come,” he stated.

Solomakhin, who joined Fidelity in 2006 and has managed the global long-short diversified fund since 2012, typically holds stocks for three to five years. His strategy has delivered a 19% return in the past year, aligning with the MSCI All-Country World Index.

Betting on the Underdogs

Solomakhin is now turning his attention to companies that appear disadvantaged by the burgeoning AI industry, particularly those affected by Nvidia Corp.'s influence. He refers to his portfolio as a "book of blow-ups," targeting firms that the market prematurely dismisses. One such investment is Concentrix Corp., a US-based chat-bot operator whose shares have plummeted 38% this year due to AI’s rise. However, Solomakhin believes this reflects an “overreaction” to AI's impact, citing the company’s assertion that investors mistake macro-economic challenges for AI-related downturns.

Another notable holding is UK defense firm Babcock International Group Plc, which has rebounded by over 170% since early 2021. Yet, not all of Solomakhin’s investments have borne fruit. Swedish network equipment maker Ericsson remains a “value trap,” having depreciated by about 20% over the past decade compared to a significant rise in Stockholm’s benchmark index. Despite ongoing losses, Solomakhin remains resolute. “I’ve been losing money on it for a long time, but I still have conviction and I’m not giving up,” he commented.

Solomakhin’s success demonstrates the potential of contrarian investing, particularly when focusing on fundamentally sound companies overlooked by the market. His meticulous strategy and steadfast resolve highlight his unique position in the fund management landscape.